Whole life still chipping away at universal life’s market share

Despite the regulatory and economic pressure on long-term guaranteed products, whole life insurance is still increasing its share of new life insurance sales in Canada. The participating product is especially popular.In 2014, whole life insurance products bolstered their share of new sales in Canada in terms of premiums, the latest LIMRA report concludes. This share reached 51% of new annualized premiums in 2014 in individual life insurance, up from 48% in 2013. The share of universal life sales held steady at 22% since the previous year. Growth of whole life sales surpassed that of universal life in terms of premiums, at 10% between 2013 and 2014, versus 2% for UL.

Saundra Edwards, assistant vice-president, market development, Great-West, Canada-Life and London Life, has seen whole life insurance sales move to participating products. “More of the shift has been away from universal life to whole life,” she confirms.

She attributes this trend to fears stoked by recent market conditions. “Markets have been volatile in the last few years. Par is a product that continues to produce solid stable returns to customers over the long term,” she says. Participating insurance pays a dividend to the policyholder, for example in the form of a premium reduction or increase in the insured capital.

We’ve had a significant compound annual growth of 18% in term of whole life premiums in the five last years.

– Saundra Edwards

Great-West has prospered in this niche lately, Edwards adds. She describes the lifeco trio as a leader that has cemented its supremacy in recent years. “We’ve been the leader in whole life par for several decades and have built on our strengths. In addition, competitors like Manulife exited the market,” she says.

Great-West’s might has its drawbacks. The insurer cannot easily outdo its rivals in terms of relative growth.

“We’ve had a significant compound annual growth of 18% in term of whole life premiums in the five last years. That growth has been 19% in the industry during that period. We were starting with the largest market share,” Edwards explains.

During this period, new players entered the market, and others have returned, she adds. Sun Life Financial, which Edwards calls “our biggest competitor”, is one of them.

Sun Life’s successful comeback

Buoyed by this trend, Sun Life successfully returned to this market despite a prolonged absence. “We launched Sun Par Accumulator and Sun Par Protector in 2010,” says Stéphane Vigneault, Sun Life’s regional vice president - Eastern region. “We came back to the market where we decided to stop new sales in 2003. It is the only time in our 150 year history where we did that. In our wholesale channel, the product went from 0% of our total sales in 2010 to 70% in 2014. During this period, the wholesale distribution network saw its total insurance sales triple.”

The demutualization in 2000 partly motivated Sun Life’s decision to withdraw its WL product. “During our demutualization, the government wanted to protect participants by limiting transfers of profits to new shareholders. It set limits on these transfers, which made the product less attractive for the company. Sales were trending downward for years, and the volumes did not justify our keeping these products. Very soon after that, sales rebounded and the crisis of 2008 brought this type of product back to the forefront.”

Vigneault confirms that Great-West is leading this market, “but we are about to breathe down their necks.” He says that the four largest insurers control about 80% of total individual life insurance sales in Canada. iA Financial Group and Manulife do not offer participating whole life. This leaves Great-West and Sun Life with a huge edge over their rivals.

The product’s popularity is driven by several factors, Vigneault explains. Universal life insurance fell out of favour because of repeated price hikes triggered by the interest rate crisis of 2008. The whole life product reacted very well to a fluctuating environment by demonstrating strong stability, he points out. It attracts affluent clients from his network who are seeking to combine asset diversification with protection.

According to our research, our two participating funds produced an average return of 8.7% over 25 years, whereas Canada bonds with a duration of 10 years or more yielded an average return of 6% during this period.

– Saundra Edwards

Sun Life currently offers a dividend rate of 6.75% on its participating products. “According to our research, our two participating funds produced an average return of 8.7% over 25 years, whereas Canada bonds with a duration of 10 years or more yielded an average return of 6% during this period. The standard deviation (fluctuation of the return) over 25 years was only 1.3% for our participating accounts, compared with 2.3% for Canada bonds. By comparison, it was 16% for the S&P 60,” Vigneault points out.

Saundra Edwards thinks that participating whole life insurance dodged the price hike bullet because it is very resistant to long-term low interest rate pressure “Whole life is built on long-term assumptions. Low interest rates can put downward pressure on dividend scales, but there is no need to restructure the product or increase prices, as has been done with universal life level cost of insurance,” she explains.

The trend toward whole life is part of a pendulum movement, she adds. “In the early 80s, par whole life was the biggest seller in the industry. UL then took off in the 90s, as an exciting, sexy product supported by huge returns on equity markets. I think the pendulum had swung too far toward UL. Now we’re seeing that with volatility, the pendulum is swinging back,” Edwards says.

Equitable Life says it is proud to compete in the participating whole life market, even if the company is not among the big four insurers in terms of overall individual life insurance sales. “Our Equimax whole life par product is the fastest growing product on our shelves,” says senior vice-president of Individual Life and Health Michael Dawe. He points out the mutual is ranked fourth in Canada in this market in terms of numbers of applications and premium amounts earned in 2014.

Dawe attributes the product’s appeal to its solid long-term returns. In 25 years, dividends credited to the product’s par account averaged 8.9%. In 2013, Equitable issued a dividend of 6.8% on its participating funds. Whole life is powering the mutual insurer’s growth.

“Over the last ten years we’ve seen our premiums grow 15 % overall on average. Growing individual life insurance in Canada in the double digits is hard to achieve,” Dawe points out.

He adds that universal life has given way to whole life due to volatility and low interest rate pressure, which led to serial price hikes. “Whole life is more competitive. Illustrations are good or better than those of the universal life level cost of insurance,” Dawe says. Equitable Life’s product mainly targets middle-income families.

Manulife Financial has no regrets about dropping its participating whole life insurance product Performax a few years ago. Spokesperson Beverley MacLean confirms that Manulife’s nonparticipating product Performax Gold is a stronger seller. “At this point, we’re selling more of our Performax Gold, our non-par whole life product, than we ever sold Performax, which was our participating whole life product.”

Manulife also reports success in universal life insurance. “We had a very good year with our universal life sales driven by the launch of our new Manulife UL product last spring. We’re continuing to invest in our insurance portfolio to be a leader in the Canadian market,” MacLean adds.